(Bloomberg) — Total SA will spend $500 million over three to four years to develop a shale-gas field in Argentina as the country’s government lures investors by pledging a minimum price.

“We have giant resources of non-conventional gas under our feet in Argentina,” Chief Executive Officer Patrick Pouyanne told reporters at a conference in Paris on Thursday. “It’s the beginning of a nice story.”

The French energy giant has given the go-ahead to develop the first phase of the Aguada Pichana Este license in the Vaca Muerta formation. Total also plans to increase its interest in the license, co-owned by YPF SA, Wintershall Energia SA and Panamerica Energy LLC, to 41 percent from about 27 percent, pending approval from local authorities.

To spur drilling at Vaca Muerta, one of the largest shale formations outside North America, the Argentine government has extended a program that ensures a minimum price for the gas companies produce until 2021. Total, already enjoying lower drilling costs following crude’s slump, has highlighted the need to get new projects off the ground to avoid a future shortfall in energy supply.

The announcement on Vaca Muerta marks the first of 10 large final investment decisions on new oil and gas ventures that Total plans for this year and next. The company is budgeting as much as $17 billion a year in capital expenditure, including resource renewal, through 2020.

Gas from the Vaca Muerta project will be treated at the existing Aguada Pichana plant, which will ramp up to its full daily capacity of 16 million cubic meters, or 100,000 barrels of oil equivalent, according to Total. The company produced 78,000 barrels of oil equivalent a day in Argentina last year, it said.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Amanda Jordan, Alex Devine

Copyright 2017 Bloomberg News.


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